Retirement may seem like a distant idea for some of us, but it’s never a bad idea to start saving as soon as you can. 401k is extremely important to any working individual because it helps plan and accomplish your retirement—Social Security is no longer guaranteed, and 401k accounts provide a simple yet effective way to set aside money for future retirement.
There are many benefits to starting your 401k early—some plans even offer amenities such as loans and in-service withdrawals, along with the bonus that your taxable income is lessoned. When it comes to saving for retirement, you need to start saving now.
Why is Having a 401k Plan Important?
We know that having a 401k plan is important, but why is having it important? Because of the recent absence of pensions, there is added pressure on the 401k to supply retirement funds. Some employees have IRA money and other savings to use for retirement, but most of the income comes from Social Security. In a 2016 study by Investopedia, even if employees wait to collect their Social Security at “full retirement age” (usually mid-60’s), it will only replace 40% of their income.
However, if you take that 40% from Social Security and combine it with a well-funded 401k plan you can usually get about 60% of your income. To finance retirement, financial planners suggest that you plan to replace 70% to 90% of your current income if you would like to maintain your current lifestyle during retirement.
Benefits of Building a 401k Savings
One benefit that stems from placing more money into your 401k is the match that your employer will make towards your plan, resulting in your 401k growing even faster. Always put enough money into your 401k to receive your full employer match; if you decide not to put in at least enough money to get the full employer match for your 401k than you are essentially forfeiting free money for a comfortable future.
You might even want to consider putting even more money in if you can afford it—if your occupation changes, roll your money over to an IRA instead of spending it so that the money will continue to grow for retirement. Ultimately the key to a full retirment savings account is to contribute as much money as you can to get the highest value and benefits. This will create more opportunities and comfort during your retired years as well as suffering from “wealth illusion” (seeing your 401k as a six or seven-digit number of wealth).
How Much Income Can I Get from a 401k?
If you are curious about how much income you can receive from a 401k, you can calculate your expected income on the U.S. Department of Labor’s online Lifetime Income Calculator or Fidelity’s Income Simulator. The Fidelity Income Simulator provides you with an estimate of how much your 401k will provide in monthly income based on how much you’re putting into your 401k and at what age you plan to retire. You can also include money from other savings such as IRA and Social Security, and you can even change factors such as life expectancy, when you plan to retire, how much money you’re putting into savings, and investments to alter your plan for retirement.
Start Saving for Your Future Now
401k plans are vital to every employee as they seek out retirement options. In order to pay for life during retirement with a few luxuries along the way, you will need a steady source of income. At Kodiak Building Partners, we encourage all of our employees to continue to set money aside now to allow that money to grow and reach or even succeed your retirement goals and dreams. Don’t wait to start saving—the earlier you start, the more comfortable your future will be!